Question

1) Good money functions as a

a. means of exchange, unit of account, and store of value.

b. valuable commodity like gold, silver, gem diamond, and so on.
c. fiat, even if some may not accept it as a medium of settling debt.
d. All the above answers are correct.

2) Which policy tool does the Fed often use to change the quantity of money in the economy?

a. Open market operations.

b. The discount rate.

c. The required reserve ratio.

d. The federal funds rate.

3) During an inflationary gap

a. real GDP is less than potential GDP.

b. aggregate demand and aggregate supply intersect at potential GDP.

c. aggregate demand and aggregate supply do not intersect.

d. aggregate demand and aggregate supply intersect at the level of real GDP that exceeds potential GDP.

4) Potential GDP is the level of

a. Real GDP that the economy could produce at full employment.

b. GDP that is impossible to achieve.

c. Nominal GDP that is smaller than the real GDP.

d. GDP that fluctuates around actual GDP.

5) When the economy is in a recession, the Fed can ___ the interest rate so as to ___ AD and ___ real GDP.

a. lower; increase; decrease

b. raise; decrease; increase

c. lower; increase; increase

d. raise; increase; decrease

6) What two parts of government determine the federal budget?

a. Fed Reserve System (Fed) and FOMC.

b. The US President and the Fed

c. The US Congress and US President.

d. The US Congress and the Fed

Answer 1

1)

Since the good money functions is means of exchange, unit of account, and store of value.

Hence option a is the correct answer.

.

2) Since for affecting the money supply Fed often uses open market operation. In this if Fed sells bonds then money supply decreases and vice-versa in case of purchase of bonds.

Hence option a is the correct answer.

a. Open market operations.

3) Since in the inflationary gap actual GDP is less than the potential GDP.

Hence in case of inflationary gap real GDP is less than potential GDP.

Hence option a is the correct answer.

a. real GDP is less than potential GDP.

4) Since Potential GDP can be defined that level of GDP at which economy is producing at full employment level.

Hence option a is the correct answer.

a. Real GDP that the economy could produce at full employment.